A New Era Of Trade Wars Is Putting The Global Recovery At Risk

Protectionism has been on the rise among both emerging and
developed markets ever since the financial crisis. Countries
around the world have unleashed tariffs, quotas and other
restrictive trade policies in their efforts to boost their own
economies.

In a new report, Societe Generale's Patrick Legland points out
that G8 economies accounted for 30% of all protectionist measures
announced in the last 12 months. They were also the main targets
of such measures, according to Centre for Economic Policy
Research (CEPR).

Protectionist measures are often met with retaliation in the form
of more protectionist measures.

All of this is bad news for the global economy, which is
struggling to maintain growth.

Recently, the European Commission tossed anti-dumping duties on
Chinese solar panels. Not long after, China said it could
levy taxes on luxury car imports. Considering the weakness in
Europe's auto market — sales fell to a 20-year low in May — this
raised concerns for Germany.

"As protectionism was one of the key factors that aggravated the
1929 crisis, the recent return of beggar-thy-neighbour policies
could hamper the fragile recovery in world economies. Thus, with
the end of cheap money from the Fed, one of the major threats for
global growth now stems from the rise in protectionism. Moreover,
the international spillover from unconventional monetary policies
could increase this risk in the future."

The concern is that with global central banks preparing to wind
down their easy money policies, the next shock could come from
global trade and protectionism.

"...Global growth (and employment) is highly correlated with
international trade. In the EU, which suffers from a high
unemployment level, world trade represents 30 million jobs,
according to the European Commission (EC). Given the persistent
trade slowdown since the crisis and its impact on global growth,
the G8 summit put the issue back in focus last week, with the
launch of negotiations for a transatlantic trade agreement
between the US and Europe."

Here's a chart from Societe Generale that shows an estimate of
new protectionist measures implemented each quarter: